In Re: X-Treme Bullets, Inc. v. Royal Metal Industries, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 28, 2024
• Docket: 22-16143
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 28 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

In re: X-TREME BULLETS, INC.; et al., No. 22-16143

Debtors, D.C. No. 3:21-cv-00062-MMD ______________________________

J. MICHAEL ISSA, as Trustee of the HMT MEMORANDUM* Liquidating Trust,

Plaintiff-Appellee,

v.

ROYAL METAL INDUSTRIES, INC.,

Defendant-Appellant.

Appeal from the United States District Court for the District of Nevada Miranda M. Du, Chief District Judge, Presiding

Submitted October 5, 2023** Las Vegas, Nevada

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). Before: RAWLINSON and OWENS, Circuit Judges, and PREGERSON,*** District Judge.

Royal Metal Industries, Inc. (Royal Metal) appeals the decision of the

district court reversing the bankruptcy court’s dismissal for lack of standing in an

adversary proceeding to avoid transfers to Royal Metal, to recover property from

Royal Metal, and to disallow claims. Reviewing de novo, we affirm the decision

of the district court. See Educ. Credit Mgmt. Corp. v. Coleman (In re Coleman),

560 F.3d 1000, 1003 (9th Cir. 2009).

The adversary proceeding was brought by the Committee of Unsecured

Creditors (Committee), which was appointed by the United States Trustee “to

represent all unsecured creditors of the Debtors pursuant to [Section] 1102 of the

Bankruptcy Code.” The Debtors “consent[ed] to the grant of derivative

standing . . . to assert, on behalf of the Debtors’ estates, the Derivative Causes of

Action.” The derivative standing was approved by the bankruptcy court.

Royal Metal moved to dismiss the adversary proceeding on the basis that J.

Michael Issa (“Issa”), the Liquidating Trust Trustee,1 lacked standing. Royal

*** The Honorable Dean D. Pregerson, United States District Judge for the Central District of California, sitting by designation. 1 The Committee ceased to exist as of the effective date of the Chapter 11 Plan. As a result, the adversary proceeding and all other causes of action “transferred to and vest[ed] in the Liquidating Trust[] for the benefit of Creditors.”

2 Metal also sought reconsideration of the grant of derivative standing to the

Committee. The bankruptcy court summarily granted Royal Metal’s motion. Issa

appealed the dismissal to the district court. The district court reversed the

bankruptcy court’s order granting the motion to dismiss and vacated the order

denying reconsideration.

We review the decision of the bankruptcy court with no deference to the

district court decision. See Tillman v. Warfield (In re Tillman), 53 F.4th 1160,

1166 (9th Cir. 2022). “We apply the same standard of review to the bankruptcy

court decision as does the district court: findings of fact are reviewed under the

clearly erroneous standard, and conclusions of law, de novo . . . .” In re Coleman,

560 F.3d at 1003 (citation and alteration omitted).

1. We are not persuaded by Royal Metal’s argument that the grant of

derivative standing to the Committee violated the Bankruptcy Code. “Although

the Bankruptcy Code contains no explicit authorization for the initiation of an

adversary proceeding by a creditors’ committee, a qualified implied authorization

exists under 11 U.S.C. § 1103(c)(5).” Off. Unsecured Creditors Comm. v. U.S.

Nat’l Bank of Or. (In re Suffolla, Inc.), 2 F.3d 977, 979 n.1 (9th Cir. 1993) (citation

omitted). “So long as the bankruptcy court exercises its judicial oversight and

verifies that the litigation is indeed necessary and beneficial, allowing a creditors’

committee to represent the estate presents no undue concerns.” Liberty Mut. Ins.

3 Co. v. Off. Unsecured Creditors’ Comm. (In re Spaulding Composites Co., Inc.),

207 B.R. 899, 904 (B.A.P. 9th Cir. 1997) (citation omitted).

In Avalanche Maritime, Ltd. v. Parekh (In re Parmetex, Inc.), we rejected

the proposition that creditors “have no standing to sue because only the . . . trustee

has authority to bring adversary proceedings under” the Bankruptcy Code. 199

F.3d 1029, 1030 (9th Cir. 1999). We held that, “where the trustee stipulated that

the Creditors could sue on his behalf and the bankruptcy court approved that

stipulation[,] the Creditors had standing to bring the suit.” Id. at 1031 (citations

omitted). Thus, the Committee had derivative standing pursuant to the stipulation

between it and the Debtors, as approved by the bankruptcy court. The authority

granted to the United States Trustee under Sections 323(a) and (b) of the

Bankruptcy Code did not preclude the grant of derivative standing to the

Committee. See 11 U.S.C. §§323(a)–(b); see also id. § 1103(c)(5) (authorizing a

“committee appointed under section 1102” to “perform such other services as are

in the interest of those represented”).

2. The Committee was not required to establish Article III standing. The

Committee “filed suit . . . on behalf of the estate,” and “[c]onsequently . . .

assert[ed] derivative standing[,]” obviating the requirement that the Committee

demonstrate Article III standing “in its own right.” In re Spaulding Composites

Co., Inc., 207 B.R. at 903; see also In re Parmetex, Inc., 199 F.3d at 1031 (holding

4 that creditors had standing to pursue claims on behalf of the estate pursuant to a

stipulation approved by the Bankruptcy Court).

AFFIRMED.